India has lifted a ban on cotton exports, the trade minister said on Monday, after a series of policy flip-flops from the world's second-biggest producer of the fibre, a move which will add supplies to an already flush market.

The decision was announced by Trade Minister Anand Sharma hours before an unusual meeting of the farm, food, trade and finance ministers called by Prime Minister Manmohan Singh to sort out often conflicting policies on key export commodities which have highlighted divisions in the ruling coalition.

The meeting, scheduled for 1900 local time (0130 GMT), could also decide to allow more sugar exports, government sources said -- another policy move called for by Farm Minister Sharad Pawar, who is a key ally for the government.

"A decision has been taken to remove the suspension of cotton export registration and fresh registration will be allowed," Sharma told reporters, adding that the government would review the export situation every two to three weeks.

Additional exports of cotton and sugar would add to over-supplied markets and put pressure on weak benchmark prices for the products in New York. India is the world's second-biggest sugar producer.

Global sugar prices have fallen 8.9 percent so far this year while cotton, which was the worst-performing commodity in 2011, has lost another 4.8 percent in 2012 to date.

China, traditionally India's biggest customer and the world's top cotton buyer, has already purchased huge quantities from top producer the United States. So, traders said any additional Indian cotton is likely to go to Bangladesh.

Cotton on the ICE Futures US exchange dropped 0.88 cent, or nearly 1 percent, to close at 91.23 cents per lb on Friday, while raw sugar futures dropped to their lowest in almost a year. 

India's trade ministry suddenly banned cotton exports last month after record overseas sales raised concerns about domestic supplies. After several about-faces, the ministry only allowed a limited amount of cotton to be shipped.

India has so far exported a record 11.5 million bales in the current marketing year to the end of September. The decision angered Pawar, who said he was kept in the dark about the ban which affects a sector vital to the economy.

Pawar, who hails from the state of Maharashtra which is India's top sugarcane producing region, also criticised the food ministry's conservative approach to sugar exports. Food Minister KV Thomas fears overseas sales may stoke inflation -- prompting Singh to try to make his cabinet see eye-to-eye.

Many trade and industry officials believe Singh will listen to Pawar, whose clout and experience have helped drive food exports in the past.

Government sources said the ministers may now also agree to allow more sugar to be sold overseas. Sugar export this year may be unrestricted, they said. The government has already allowed 2 million tonnes of sugar to be exported in two separate tranches in the marketing year to September 2012. I n dia's sugar production is expected to outpace domestic demand 2012/13. - Reuters